China’s finished steel exports in Nov’21 dipped by 136,000 tonnes or 3% m-o-m to 4.36 million tonnes (mn t) against 4.50 mn t seen in Oct’21, as per the country’s Customs data. The y-o-y drop was 9%. While exports were expected to show a decline, importantly, the volumes have fallen for five consecutive months to a 13-month low.
Over Jan-Nov’21, however, export volumes touched 61.87 mn t, a sharp 27% rise over 48.83 mn t seen in the corresponding period last year (CPLY).
In CY’20, exports were at 53.67 mn t.
The growth of steel exports so far in the current year can be attributed to the lower base in CY’20, when China was in lockdown during the better part of H1 with the virus first detected in Wuhan and the country swinging in quickly to control it. In the second half, most overseas markets went into lockdown and mills used China as a lifeline.
This year’s steel exports have been dominated by flat plates thanks to the ship-building industry on an overdrive.
Imports up m-o-m, drop y-o-y
Customs data also reveals that China’s finished steel imports in November rose 26% to 1.42 mn t against 1.13 mn t in October. Over Jan-Nov’21, however, imports fell 29.69% to 13.26 mn t against 18.86 mn t in CPLY, again due to the higher base in CY’20, when imports touched 20.23 mn t.
Will exports increase?
The jury is still out on whether exports will increase next year. The predominant view is that exports will likely rise in the short term. And the reasons are not far to seek:
- Export prices look more lucrative: China had initiated the export tax rebate adjustments on steel products twice this year, giving clear signal that the government wanted to prioritize domestic steel consumption. The idea was that after the export tax refund removal, mills would be less motivated to export. However, currently, there is a gap between Chinese domestic and overseas prices which is increasing the export advantage for Chinese mills and traders. “The higher overseas prices were driven by disrupted supply chains while Chinese steel prices dropped because the government was determined to suppress commodity prices, including that of coal, met coke, iron ore and finished steel. Thus, steel prices became competitive because of the lower raw material costs,” inferred a source from China.
Last month, Chinese steel prices fell by more than RMB 300/tonne (t) ($47/t) for some categories.
- Real estate sector chaos: The lower Chinese steel prices were also due to the somewhat bleak data in Q4, dragged down by real estate and off-season demand slump which may force Chinese mills to explore overseas markets now.
- No supply-side reforms on agenda: China’s top planning body, the Politburo, in a meeting held on 6 Dec’21, pledged to make economic growth a top priority for CY’22, supported by more proactive fiscal and monetary measures. Sources informed that “supply side reforms” were not mentioned during the meeting, indicating that further strict steel output cuts or restrictions on steel exports would be unlikely in the near term. As a result, some sources said China’s steel production was almost certain to rebound in Q1CY’22, after steel mills finished output cut requirements for CY’21. Correspondingly, steel export volumes were expected to trend upward in Q1CY’22. It seems some mills have deferred their export shipments from Nov-Dec’21 to Jan’22 in order to work around the steel output cuts in the last two months of CY’21, sources said.
- Low domestic demand in near term?: China is moving towards the Lunar New Year in early Feb’22, prior to which, the Chinese labour force will go on a one-month holiday, which will slow down industrial activity. Moreover, China is not encouraging carbon-spewing industrial activity ahead of the Winter Games over 4-20-Feb’22. These factors may keep domestic demand low and perhaps encourage exports. Post-this scenario, China would likely return to the market full throttle.
Mid-to-long-term view
On the other hand, others feel exports will remain subdued in the medium to short term due to the government’s continued focus on output cuts and value-added exports. If the price gap between domestic and overseas products widens in future, China may further introduce relevant policies to restrict exports and the volumes are not likely to exceed CY’21 levels. “Later, in CY’22, exports may show a downtrend again, and gradually shrink,” as per a report.
Chances are very high that crude steel production next year will not be more than the level achieved this year. Chinese sources informed SteelMint that the crude steel output reduction policy may last for three years. After that, the steel industry on the whole will not need mandatory output cuts with all facilities reaching advanced levels to follow emission norms.
The annual export volume this year is expected to be 66 mn t.
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